Vodafone on hunt for more customers

With its $840 million takeover of TelstraClear passing
through the required regulatory hoops, a beefed-up Vodafone
is on the hunt for customers and is now well placed to emerge
as the country's leading mobile and internet provider, says
one analyst.

For Telecom, still in the shadow of its seismic corporate
shakeup and split with Chorus, this means fending off a wolf
at its door that could eat into its dominance in the
broadband market.

"Their marketing skills, their marketing capability, their
brand, all of that is superior to Telecom's," Budde said.

"They have therefore a much better chance long-term, that
doesn't happen overnight, to do exactly what they did in the
mobile market, which is outmanoeuvre Telecom totally ...
they're going to repeat that in the fixed [line and
broadband] market. Why wouldn't they? I mean, the market in
that respect is wide open." he said.

Particularly when the Government's ultra-fast broadband
scheme begins to get traction and fibre internet cables are
laid past more homes, the Sydney-based analyst said he would
not be surprised if Vodafone quickly establishes itself as
the major player in the consumer space.

"It would be a mammoth task for Telecom to fend off any sort
of marketing advances that Vodafone is going to put in
place," Budde said.

That being said, catching up to Telecom's lead in broadband
would be no mean feat.

Even with the addition of TelstraClear's customers, Vodafone
holds just under a third of the broadband market, compared
with Telecom's 49 per cent share.

Craigs Investment Partners' Arie Dekker said that advances in
the market by Vodafone should not be ruled out and agreed the
company had proven its panache for marketing.

But its marketing and brand was not the whole story behind
Vodafone's winning the largest chunk of the country's mobile
customers.

According to the latest available numbers, Vodafone has about
2.4 million mobile connections which represents about 48 per
cent of the market, while Telecom has about 32 per cent.

"They basically had a stronger mobile network, they had the
availability of better handsets and that was equally a large
contributor as its marketing, I think in fixed [line] in New
Zealand, the playing field is much more level," Dekker said.

Dekker said Telecom's new chief executive Simon Moutter had
also signalled the company would invest during this financial
year to stem the loss of broadband customers.

"They're looking to draw a line in the sand to retain market
share," he said.

Citigroup analyst Justin Diddams said the
Vodafone-TelstraClear deal gives the telco the scale to offer
more competitive prices and he believed it will take ground
from in the fixed-line telephony market.

According to First NZ Capital's Greg Main, part of Telecom's
plan could be to launch a broadband sub-brand to target
younger customers much like it has done with Skinny in the
mobile space.

As competition intensifies, Main also said, Telecom and
Vodafone may begin selling mobile phone services as part of
the phone and internet bundles they sell to households.

This would "lock-in" customers with a provider and mean they
are less likely to change to a rival.

Whether or not Vodafone can woo Telecom's customers, most
commentators are certain competition is going to heat-up in
the coming months.

For Diddams, this means New Zealanders should expect telcos
to offer more attractive plans in their effort to draw in
customers.

But although the market would have the appearance of
competition, Budde believed there was a real danger of a
duopoly forming.

"A duopoly in general does not lead to maximising
competition, there is no real incentive for two players to
kill each other," Budde said. "There will be some sort of
unwritten gentleman's agreement at a certain stage," he said.

"For all intents and purposes it will appear that there is
competition but then if you compare New Zealand prices and
products with prices and products in more competitive markets
then you will very quickly see that the prices in New Zealand
are higher than the rest of the world and innovation will be
slower."

The Commerce Commission - in approving the
Vodafone/TelstraClear takeover - did not share Budde's view.

In giving the merger the go-ahead the market regulator's
chairman Mark Berry said the Vodafone's acquisition "would be
unlikely to substantially lessen competition in any of the
relevant markets".

"The commission considered that the merged entity would
continue to face competition from Telecom, as well as Orcon,
Slingshot and other smaller businesses in providing fixed
line voice and broadband services to residential and small
business customers," he said.

Brislen, however, said the commission should keep an eye on
the market and intervene if necessary.

"There is a risk [of a duopoly]," Brislen said.

"Everyone I speak to at Vodafone, from [chief executive]
Russell Stanners down assures me they'll be as competitive as
they can be, predominantly off the back of them investing
$800 million of the parent company's money.

"They are determined to win market share because they have
to, otherwise heads will roll."